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Beneath Google's Dot-Com Shell, a Serious Player

This BoomTown column was first published in The Wall Street Journal on January 21, 2002. All rights reserved.

You’d be forgiven for thinking someone has forgotten to clue this leading Web-search firm in on the new reality of the tech universe, where fun has been declared illegal and the few remaining West Coast online companies are laboring to look buttoned-down dull; where profligate spending is over; and where vision statements are now limited to “we offer well-defined, fee-based premium services,” “we believe in cost controls” and, most of all, “we’re profitable.”

But Google’s still alive and kicking precisely because, underneath its goofy decor, it has always hewed to the conservative business approach that is now gospel. Since its founding in 1998, the start-up was best defined by what it didn’t do: It didn’t go public prematurely, didn’t raise or spend too much venture funding, and didn’t initiate 23 businesses at once. In short, it didn’t participate in the cesspool of greed and excess that the rest of Silicon Valley dove into with abandon.

That’s allowed Google today to expand its work force, stabilize its advertising base, contemplate new projects, add customers and breathe pretty easy in the dour atmosphere of the tech world.

“We’re doing perfectly fine and unaffected, actually,” says Eric Schmidt, 46 years old, a well-known Valley technologist and executive who became CEO of Google last summer. He was brought in to the closely held company as its resident “adult,” whose job was to institute more formal management systems.

With that structure now largely in place, the real question today for Google and other survivors is how big and sustainable they can make their businesses. It’s in the success of many smaller companies like it that the true recovery of the tech sector is likely to begin.

But while the company has many fans, some wonder where it can find new growth. “They have to think long and hard about what they are going to excel in next — in enterprise search [search services used inside companies], as a destination site or powering search on the Web for others,” says Whit Andrews, an online analyst for Gartner, a research firm.

Still, most analysts are impressed with how well Google has been doing. “We’re actually enjoying the bust,” says Mr. Brin, 28, who doesn’t own a car and lives in a rental apartment near Google’s Mountain View, Calif., headquarters. “Especially because all those stupid billboards and expensive cars are gone.” Mr. Page, 29, agrees: “A lot of energy was devoted to not doing anything useful.”

Without the distractions, Google’s honchos say they can focus on what Google does best: innovating its search technologies and, more importantly, figuring out new revenue streams. “We are in the business of solving search, broadly defined,” says Mr. Schmidt, who last year defined the measurement for success as “traffic growth that is greater than revenue that is greater than expense.” The company has done that, so far. It is becoming an increasingly dominant provider of Web search services, becoming more popular with consumers largely because of its fast, clean-looking and relevant search results.

But it’s also a business where others have reigned before. Most later lost their crowns or abdicated for more lucrative businesses. It has a spate of competitors that are all trolling for customers, selling technology to sites like Yahoo, which is Google’s largest customer and also an investor.

Google obviously thinks that search is a good business, arguing that its need will only grow as more information becomes available more quickly. And unlike other Web sites, the company isn’t backing away from relying on ad sales. Half of Google’s revenue, which it doesn’t report but which sources say was $60 million to $70 million in 2001, comes selling text-based ads that are placed near search results and are related to the topic of the search. Unlike some other search sites, it don’t accept payment for giving advertisers better placement in the search results or offer banner ads. Google officials say the company is profitable.

More important, company officials note, their financial stability allows for a range of experimentation to find new fonts of revenue. That includes a new service that shows users pictures of hundreds of print catalogs that have been scanned into Google’s servers. The revenue possibilities are obvious: referral bounties, placement fees and other links with retailers.

Other businesses that Google is exploring carefully include: selling more search services to corporate Web sites and finding better ways to make order out of all kinds of “unstructured” data. It is also expanding services and ad sales internationally, since more than half of Google user requests come from abroad.

If Google does all this right, says Mr. Schmidt, the company will move toward the public stock markets. Until then, without a lot of cash or stock to throw around, Google cannot easily acquire other companies that might improve its business.

Of course, rumors of Google being acquired have constantly swirled around the company. But the current business plan — to sell its search products to as many people as possible — is counter to the idea of being owned by one large player. That means settling on building a small company into a large one, piece by piece. Mr. Brin thinks Google can eventually grow to a $100 billion company — although he also knows such dreaming is for another time when lava lamps and boy billionaires ruled the roost.